Insight and Commentary on Business Legal Issues

A federal trial between the nation’s two largest wiener manufacturers got underway on Monday in Chicago. The Court will decide whether the hot dog makers broke false advertising laws in their respective efforts to become the biggest dog in the pound. The controversy pits Sara Lee Corp., which makes Ball Park franks, against Kraft Foods Inc.’s Oscar Mayer, in a proceeding that could define how much companies can boast about their products.

The war between the parties started in 2009, when Sara Lee filed suit after Oscar Mayer advertised that its dogs beat Ball Park franks in national taste tests. Kraft argued that the tests were flawed and countersued, alleging that Sara Lee ran false and deceptive ads, which tagged Ball Park as “America’s Best Franks.” The Sara Lee ads also assert that the “other hot dogs aren’t even in the same league.”

At the trial’s opening day, the parties argued over such minutiae as the difference between beef and meat and whether taste tests that exclude buns and condiments are valid. Another focus of the trial will be Kraft’s claim that its jumbo franks are made of beef. Not surprisingly, Sara Lee contends that the claim is untrue and further asserts that Kraft’s “100 Percent Pure Beef” campaign has damaged the sale of Ball Park franks.

At stake in the legal battle is a $1.76 billion hot dog market and whether either company’s boasts crossed a line into the world of ‘false advertising.’ The trial is expected to last two weeks. Stay tuned for the ‘top dog’ finale.

Last week, 3M, known for its Post-It Notes, masking tape, waterproof sandpaper, and Scotch brand tapes settled a claim brought by several hundred former employees who accused the company of age discrimination.

The U.S. Equal Employment Opportunity Commission said its investigation found an e-mail which describes then-CEO Jim McNernery’s “vision for leadership development as “we should be developing 30 year olds with General Manager potential.”

The consent decree, that still requires judicial approval, said 3M will pay $3 million to about 290 former employees and must also provide training on how to prevent age bias and establish a new process for termination decisions.

For employers who make decisions to terminate in a similar situation, they should consider whether there was a legitimate business reason for the decision to terminate, whether they have treated similarly-situated younger employees in the same manner, and if they haven’t, whether there is a good explanation for the difference in treatment.

If an employer can’t affirmatively answer those questions, they may find themselves in a similar situation as 3M.

A few weeks ago, the Federal Housing Finance Agency (the “FHFA”) sued a number of banks, accusing them of misrepresenting the quality of mortgage-backed securities they sold during the height of the housing bubble. Among the 17 financial giants sued were Bank of America, J.P. Morgan Chase, and Goldman Sachs.

The FHFA alleges that the banks failed to perform the due diligence required under the law and that the securities were sold with registration statements and prospectuses that “contained materially false or misleading statements and omissions.” The FHFA further argues that the banks knew, or should have known, that the mortgage securities they were bundling were based on fraudulent or bad loans.

The FHFA claims that due to this lack of due diligence, borrowers defaulted on their loans and the value of the securities backed by the loans declined dramatically. The FHFA suits also accuse the defendants of selling bonds backed by mortgages that should not have been packaged into securities.

The FHFA, which oversees Fannie Mae and Freddie Mac, claims that as a result of the faulty loans, Fannie and Freddie lost billions. The FHFA is charged with preserving and conserving these companies’ assets and does so on behalf of taxpayers.

The FHFA lawsuits cap a rough time for the nation’s major banks, many of which are already facing potential payouts of billions of dollars to settle other charges of abusive regulatory mortgage lending and foreclosure practices. Bank of America was also sued last month by AIG which seeks $10 billion in damages for misrepresenting the quality of securities it was selling.

The FHFA complaints seek damages and civil penalties under the Securities Act of 1933. In addition, each lawsuit seeks compensatory damages for negligent misrepresentation.

While the amount FHFA seeks to recover is unclear, it is estimated to top $40 billion. It is also anticipated that these FHFA suits will affect the ability of banks to lend money, thereby adding salt to an already wounded housing market.

Can your business be sued for not accommodating an individual who is overweight? What about if that individual is obese?

Generally, the answer is “no.” There are no federal laws which specifically prohibit obesity discrimination, but some individuals have argued that their weight can be considered a disability for purposes of the Americans with Disabilities Act (ADA) or the Rehabilitation Act of 1973.

Recently, Martin Kessman has filed suit against White Castle to test the limits of the ADA because he cannot wedge himself into a seat at his local White Castle. Kessman, who is approximately 290 pounds and admits to being a “big guy,” is claiming that his local White Castle is in violation of the ADA because its seating cannot accommodate an individual of his size. Kessman further claims that he smacked his knee into a metal post while trying to wedge himself into the stationary seating.

The ADA prohibits discrimination based on a disability in the areas of employment, public services, public accommodations, and services operated by private entities, transportation, and telecommunications. To prevail in an ADA discrimination claim, a plaintiff must show, among other things, that he/she has a disability within the meaning of the ADA.

The ADA regulations which address obesity and whether it can be an impairment that qualifies as a disability states that only in rare circumstances will obesity be considered a disability. Further, the EEOC states that being overweight, in and of itself, generally is not an impairment. However, severe obesity, which has been defined as body weight more than 100% over the norm is clearly an impairment.

So, what does this all mean for Mr. Kessman? It is unlikely that he is going to prevail, but he is not alone is his efforts.

It’s a question that my savvy litigation clients know to ask, before filing suit. No one wants to go through the time and expense of a lawsuit, only to find, after winning the case, that they’ve spent more money on legal fees than they were awarded from the other side.

A good rule of thumb (with some procedural exceptions) is that the prevailing party in a lawsuit may be awarded fees only if a claim for fees is expressly provided in a contract or in a statute which is at issue in the lawsuit. So, prevailing parties in negligence suits, for example, aren’t typically entitled to fees.

Keep in mind, however, that since only “reasonable” fees will be awarded, and the amount to be awarded is largely in the judge’s discretion, even if you win, you will rarely be awarded 100% of the money you spend on the litigation, and an award of fees is, of course, only as good as your opponent’s ability to pay.

One way to protect yourself, is to consult with counsel, before entering into any contract, regarding the pros and cons of including an attorneys’ fees provision.